Unit 3 – Neo-Liberalism and Governance

The focus for this unit was Neo-Liberalism and governance.

Neo-liberalism

I had high hopes for neo-liberalism: a “counter-revolution in development policy,” (Toye, 1999, p.68). Following our discussions surrounding the drawbacks of modernization and dependency theories I was eager to discover what counter policies for development were brought to the table. I admit that upon learning about some of the origins for the dramatic and fast paced rise of neo-liberalism warning bells rang, causing me some feelings of trepidation:

– the debt crisis of the1970s

– a rise of conservatism in the USA and UK

– rapid growth of some East Asian economies

These factors led me to question the motives behind neo-liberalism; was it a way of protecting the interests of western civilisation? A reactionary move to benefit the richer countries? Were these policies genuinely created in attempt to improve the development prospects of poorer countries?

Colcough’s (1991) some what damning explanation of neo-liberalism left me confused. It is understandable that development theorists were keen to distance themselves from advocating government-controlled markets. It comes as no surprise that a theory was developed which counter acted what had previously failed to act as a guide towards ‘good’ development. The failures and limitations of modernization policies in anticipating economic growth through industrialisation without further investment in training and education or attention paid to the specific nature of a particular country called for a widening of perspectives with how development should be viewed. However the new premises for ‘fixing’ the damage done by modernization seem equally as short-sighted and in some cases extreme to the point of ludicrous.

Neo-liberalism attributed a lack of development as, “Mainly caused by excessive economic intervention by…governments,” (Colcough, 1991), further concluding that the solution, amongst other policies, was the withdrawal of government intervention in the economy. As Colcough and Toye (1999) point out, neo-liberalism simplified problems to the extreme, thus putting forward ‘overly-simplified’ solutions’ (Toye 1999, p.74). For instance it claims that, “All direct state actions to promote industrialization, (protection, licensing, reserved markets, subsidies to labour…state-led research and development) divert resources away from more ultimately profitable uses,” (Colcough, 1991, p.19). I would argue that government led initiatives in an economy are an essential component in development. Instead of removing this type of aid altogether I am more prone to agree with Toye, who instead calls for a rebalance between economic and human development to ensure that society is able to maximise their use of the market, otherwise as he indicates, “Physical capital accumulation can out-run people’s capacities to plan and manage its productive use,”(1999, p.82).

State intervention has not historically been viewed as detrimental to development. It was interesting to read about Japan as an example of successful state intervention, “Japan launched its development by setting up a series of government-owned industries but, as economic growth seeped up, it gradually sold them to the private sector”(Toye, 1999, p.79). Without the external agenda of wealthier countries Japan’s government was able to focus attention on finding their most beneficial process for development. This drew to mind what Moore discusses in ‘Political Underdevelopment’ (2001) about the harmful impact of relationships with richer countries and the negative consequences he attributes to international interventions.

Colcough left me questioning why neo-liberalism became so popular. It was my subsequent reading of Toye that illuminated the reasons behind neo-liberalism’s appeal; he highlights how the problems surrounding previous development initiatives were each allocated a solution under neo-liberalism. Previous policies had created states that were dependant on government intervention and the creation of false economic values, “One sees that entire sectors of economic activity in the Third World show a tendency for Third World countries to rely more heavily on public enterprises than non-third world countries do,” (Toye 1999, p.71). Price-fixing, tariffs and subsides led to a plethora of problems including high production costs, de-valued goods and corruption. Taking control away from government and allowing markets to dictate prices without state intervention does appear to have advantages. However I cannot help but place on onus on governments to protect it’s citizens from those who would exploit a free market. Some government intervention is essential: “A government that failed to regulate effectively (these) chronic abuses of the market system would be abandoning responsibility for the heath and safety of its citizens on a scale that would surely undermine its legitimacy,” (Toye, p. 87). It remains their responsibility to ensure that inequality does not rise further as those who succeed in a freer market generate more wealth and those who cannot access the market effectively become poorer?

Good Governance

There can be little doubt that a country needs to utilise aid and economic investment effectively; governments, societies, industries etc. need to ensure money and resources are used efficiently. As Toye explains, “Evidence of the wasteful use of physical capital in developing countries was not hard to come by;” without good governance countries find themselves equipped with unstaffed hospitals, roads that abruptly end and grandiose buildings that serve only to impress on an international stage (1999, p.72). As he goes on to point out, these errors do not justify a withdrawal of investment, merely a better use of it. Toye realistically states that, “A share of investment spending will always be wasted. But that does not imply that development will take place without a continuous attempt to invest productively,”(ibid p.84).

My initial reaction to the appearance of ‘good’ governance on the development stage was that is allowed blame for the failure of development policies to rest on the shoulders of the poorer countries by insisting it was not the policies that were at fault but the way in which a county was able to implement them. Put bluntly, it is because poorer countries are badly governed that the Washington Consensus failed to yield results. It was fascinating the read Moore’s examination of the relationships between developed and developing countries, it offers valuable insight into why ‘bad’ governance is more prevalent in developing countries. Whilst it is possible, as the ODI paper demonstrates, to formulate core principles of good governance, along the same vein it can be said that there are crucial elements which are viewed as ‘bad’ governance. There exists, “regimes that are both a) ineffective….and b) arbitrary, despotic and unaccountable,” (Moore, 2001, p. 386). Moore’s theory regarding why there exists more examples of ‘bad’ governance in poorer countries is not because it is, “Inherent in the culture or traditions of the people of poor countries nor a product of poverty” but because of their interactions and relationships with the rest of the world (ibid.).

In certain respects, as Leftwich (2000) highlights, good governance is a desirable, if not essential component to development. It is logical that a country, which practices good governance, will be in a better position to utilise aid and is less likely to exploit international donations. Problems begin to arise when complex questions need to be asked: What is ‘good’ governance? How is it implemented? How is it quantified? Here we return to the problems in unit one with definitions and measurements.

The way in which good governance is used as a condition for aid by the IFIs is loaded with contradictions. They are insisting that a country complies with, “Explicit political and institutional conditions to its aid,” (Leftwich, 2000, p.114) and yet as he goes on to point out, “They seldom paused to explore whether any or all these conditions were present in those societies where they were advocating good or at least improved governance,” (ibid, p. 117). The ODI paper, 2006 points out, “International donors engage with governance in ways to fit their own specific mandates,” (based on Hayden, Court and Mease, 2004) as oppose to a way which genuinely seeks to benefit a developing country.

Good governance is too important a concept to relinquish simply because it’s definitions are vulnerable to exploitation. Hayden, Court and Mease (2004) along with the ODI Briefing Paper (2006) offer hope by highlighting that there are certain aspect of governance which are agreed upon on almost a global scale; principles based on participation, fairness, decency, accountability, transparency and efficiency. If the allocation for aid was an equation balanced upon these ideals, coupled with Grindle’s (2004) call for ‘Good Enough Governance’ then perhaps a model for development is within reach. Since good governance clearly has a vastly complex agenda and requisites, which are beyond the reach of even the most developed countries, it was refreshing to read Grindle’s ‘Good Enough Governance’. “Much can be done through research and strategic analysis to make the good governance agenda less overwhelming for poor countries…This kind of work can help sort out the essential from the less so.” What a country is already doing well, what it needs to prioritise and what it is able to realistically achieve given it’s circumstances are by far more effective measures for ‘good’ governance (Grindle, 2005).

My reading this week as left me feeling that the role of the government within the economic sphere remains vital. Reducing inequality, a key component in development, has to be, fundamentally, the role of the government. The private sector cannot be relied upon to concern themselves overly with issues of inequality, human rights etc as, to coin a phrase, it does not make ‘good business sense’. Without state intervention in the market a country loses the safety net, there to catch the most vulnerable members of its society – thus ensuring the pattern of the rich becoming richer and the poor becoming poorer. It is ironic to note that the countries advocating neo-liberalism bear witness to their own government’s regulations over certain aspects of the economy and yet uphold that state intervention is detrimental. An example of this can be seen in Bulgaria. Having worked in an orphanage there during the start of the tourism boom I witnessed how beneficial the boom was to those who could access the tourism market. There was a huge rise in property value along the eastern coast, tourist brought with them comparably huge amounts of money to invest in the economy. The richest members of society, those who owned property and businesses accumulated wealth. However with very little in the way of government legislation regarding wages, working conditions and regulations there was ample opportunity to exploit the more vulnerable members of society to maximise the profit of the few over the many. Similarly in the Lang Tang valley of Nepal, where I later taught, rural farmers are forced to lease properties off landlords whose land they also farm. There was no regulation on rental agreements, production or market value of the rice they grew. The poorest members of the community simply were not able to work their way out of poverty, often forced to hand over a vast percentage of their yield to subsidise rent – they were entrenched in a system in which only the powerful and wealthy thrived.

So many development initiatives appear motivated by a political or economic guise. For the richest countries to first claim that foreign economic investment is detrimental and then to further make aid conditional gives almost limitless justifications about how support for less developed countries is allocated. “Although the World Bank and the IMF have considerable operational autonomy and are often independent sources of important development ideas, initiatives and policy, it remains the case that, politically, they are ultimately the creatures of their members and hence influences and fashions feed through from their members- and from the dominant ones in particular,” (Leftwich 2000, p.112). Learning about good governance only served to increase my disillusionment that western development theories are pre-occupied with generating policies which ensure their continued gain from relationships with less developed countries.

Development initiatives which are open wide to corruption and deception are inevitably doomed to failure. But rather than having ideas of how to improve upon the situation I am left wondering if human nature means development policies will always look out for the interest of those making the decisions first and foremost. While this pre-occupation with looking after number one exists I am left doubting the capacity of any theory to advocate real change. Sachs sums up the feature that all the development theories to date share, “They tell a common story: it did not work,” (1992).